Tough Choices Ahead for Everyone
As the crisis deepens in Zimbabwe, everyone is being confronted with tough decisions. At the core are two situations that are the roots of this crisis – the first and probably the most important is the near complete disintegration of the Zanu PF Party who are in power. The second is the continued decline in economic activity across the board in all sectors. This is being compounded by a liquidity crunch that now grips our dollarized economy.
The collapse of Zanu PF began many years ago when their popular support base was eroded by the growing influence of the MDC and widespread disaffection with how they were managing national affairs. Zanu was saved by the GNU in 2009 but the moment they resumed full control of the State in 2013 the disintegration of the Party resumed.
The first manifestation of this latter process came in mid 2014 when a campaign was launched by elements in the Party to remove Joice Mujuru from the Vice Presidency and replace her with Emmerson Mnangagwa. This was successful but brought the President’s wife into the political arena and having tasted political power, she would not be stuffed back into her household box.
Instead she herself decided to have a go at real power and she mounted a campaign against everyone left in the Party except a coterie of younger Zanu PF leaders who felt marginalized by the Veterans of the Party. Using her position as the Chairperson of the Women’s Wing of the Party and the wife of the President, she has antagonized great swathes of the traditional support base of the Party.
Last week this reached a point where the power brokers in the Party could no longer take the heat and they issued an ultimatum – it’s us or them. Mr. Mugabe was forced to decide and in a series of meetings on Monday and Tuesday culminating in a brief Politburo meeting on Wednesday – the decision was made that the status quo stays in place. It was a victory of sorts for Mnangagwa.
But this game is not over and the deteriorating health of the President and his declining control over the affairs of State and the Party, can only lead to intensified competition for power and control. As a result the body politic is frozen in its place and critical decisions are not being made. We are a ship in a storm with no one at the Helm
The demonstrations by war veterans on Thursday and Friday were clearly the start of a new phase in this struggle. They were motivated by the Mnangagwa faction and ostensibly targeting the President’s wife who has antagonized many. My own view is that the longer term target is the President himself whom many in the Zanu PF Party now feel is a liability.
While this cat fight in Zanu PF continues unabated and out of control, the economy slides deeper and deeper into the mire of despond. The most immediate problem for business is that the Minister of Finance has been rolling cash held in the RTGS accounts at the Reserve Bank. These accounts hold, on average, about $500 million. This small balance is then used to fund money transfers ordered by the holders of bank accounts with Commercial Banks for payments of all kinds. In 2015, $45 billion was passed through the RTGS system pointing to a cash turnover in the account of once every three days on average or a billion US dollars a week.
This is a very interesting situation and shows clearly the rapid turnover of cash in our society. But when the Minister of Finance does not have the money to pay critical bills (such as the Civil Service or the Armed Services) he has been dipping into the RTGS accounts and borrowing money against an IOU which is then paid back to the accounts from ensuing tax receipts. The problem comes when he is unable to reimburse in a short period (say two weeks). When that happens businesses with ample cash in their accounts at the Bank are unable to make payments through their RTGS account to their suppliers.
Because of this, businesses are being told that although they have the balance in their accounts on paper, the money is not available to meet the transfer requested and they are proposing to schedule part payments over time. I have heard of businesses being told that “we cannot pay the $1,6 million you asked us to move – we can only do $200 000 a week for the next 8 weeks”.
This is having a major impact on our reputation as a trading nation – foreign suppliers are withholding deliveries unless the situation clarifies. Just this morning I heard of maize buyers from Zimbabwe buying maize in Zambia with cash US dollars. Soon we might well see tankers collecting cash from service stations for fuel deliveries, something that has not happened since we dollarized in 2009.
The G40 faction in Zanu PF is threatening the business community with the introduction of a new local currency printed at the Reserve Bank. If this happens they calculate that they will be able to accumulate all US dollar balances in all Banks at the Reserve Bank (about $5 billion) and replace these with bearer bonds to the same value. They are also threatening to enforce the policy of indigenisation and force all business to hand over 51% of their equity and control to local persons classified as being “indigenous”. These massive transfers (in the mining industry alone the figure is estimated at $7 billion) would then be financed over time by a massive 10 per cent “levy” on the gross turnover of all companies.
If either of these threats came even close to being enforced by the regime in power, I would not expect the regime to survive more than 14 days. The economic and political collapse would be absolute. In the mean time, just the threat of these extreme measures is enough to freeze maintenance of assets and all new investment in all business concerns. This is contributing to the continued slide in domestic economic output.
In turn, this decline in the economy is leading to lower tax receipts and creating even more difficulties for the Government and the Ministry of Finance in particular. They are completely desperate and are seeking all means possible to secure foreign lines of credit or new loans to bolster domestic liquidity. Given the resumption of limited sanctions on the regime by both the United States and Europe in the past month, foreign financing is going to be very difficult to raise. The appeal by the Vice President, Mnangagwa, last week to the international community for $1,5 billion in emergency assistance to alleviate the effects of the drought were met with mirth and ridicule.
So where are we – all of us? We are in a tight corner with many difficult decisions to make. Do we stay, do we run, do we fight; do we retreat? No one is spared from this process. Only one thing is for sure – staying where we are is no longer tenable.
Harare, 20th February 2016